EURUSD rebounds to around 1.0770 ahead of Fed policy, as Trump’s election maintains the bearish bias.
In European trading hours on Thursday, the EURUSD rebounded to about 1.0770. The main currency pair has recovered after reaching a more than four-month low below 1.0700 on Wednesday. The recovery comes as the US Dollar (USD) corrects ahead of the Federal Reserve’s (Fed) interest rate announcement, which is due at 19:00 GMT.
The German three-party coalition has dissolved, setting the stage for quick elections in early 2025.
On Wednesday, the USD Index rose by more than 1.6%, the largest single-day rise in over four years, as Citizens of the United States (US) voted for Republican Donald Trump against Democratic nominee Kamala Harris in the presidential election. Trump’s promise to boost import tariffs and slash business taxes fueled the US dollar’s surge. Following Wednesday’s surge, the US Dollar Index (DXY), which measures the value of the US dollar against six major currencies, fell to around 104.80 on Thursday.
The Fed is likely to lower interest rates by 25 basis points to 4.50%-4.75%.
Higher tariffs would make imported goods more expensive for US citizens and corporations, perhaps fueling inflation. Lower taxes may also increase expenditure, adding to price pressures. This scenario would make it more difficult for the Federal Reserve (Fed) to sustain its rate-cutting policy.
Moreover Regarding the Fed’s monetary policy meeting, markets have priced in a 25 basis points (bps) interest rate drop, which will The CME FedWatch tool suggests that interest rates will fall to 4.50%-4.75%. Because the Fed is generally expected to lower interest rates, markets will closely watch the monetary policy statement and Fed Chair Jerome Powell’s news conference. Investors want to know if the Fed would reduce its policy-easing cycle if Trump fulfills his campaign promises.
Daily market movers: EURUSD recovers amid several headwinds.
The EURUSD has recovered quickly to near 1.0770 at the expense of the US Dollar. However, the major currency pair’s outlook remains weak, as Trump’s protectionist measures are projected to impose a huge strain on the Eurozone economy.
Trump’s proposed 10% tariff on all imported goods would have a negative impact of 0.1% on According to a recent research published by the London School of Economics and Political Science, the EU’s Gross Domestic Product (GDP).
Moreover Luis de Guindos, Vice President of the European Central Bank (ECB), cautioned at a conference in London on Wednesday that US tariffs might set off a worldwide trade war. “If you impose a tariff, you have to bear in mind that the other party is going to react, and it’s going to retaliate, and that could give rise to a vicious circle of in terms of inflation, tariffs, which could be the worst possible result and outcome,” said Guindos, according to Reuters.
Meanwhile, the fall of Germany’s three-party government has increased the downside risks to the continent’s economic growth On Wednesday, German Chancellor Olaf Scholz removed Federal Minister of Finance Christian Lindner, setting the stage for early elections in 2025. “It was necessary to prevent harm to our country,” Scholz told CNN.
On the economic front, German industrial production fell by 2.5% in September, above the 1% decrease forecast by market participants.
